Summer Internship Project Report on INDIAN STOCK MARKET ANALYSIS AND FORECAST OF KOTAK MAHINDRA BANK LTD.

By Hemant Kumar A0101911148 MBA GENERAL Class of 2013 Under the Supervision of

Ms. TAVISHI Assistant Professor Department of Economics In Partial Fulfilment of the Requirements for the Degree of Master of Business Administration At AMITY BUSINESS SCHOOL AMITY UNIVERSITY UTTAR PRADESH SECTOR 125, NOIDA - 201303, UTTAR PRADESH, INDIA 2012

DECLARATION

Title of Project Report

INDIAN STOCK MARKET ANALYSIS AND FORECAST OF KOTAK MAHINDRA BANK LTD.

I declare

(a)That the work presented for assessment in this Summer Internship Report is my own, that it has not previously been presented for another assessment and that my debts (for words, data, arguments and ideas) have been appropriately acknowledged

(b)That the work conforms to the guidelines for presentation and style set out in the relevant documentation.

Date : ..

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CERTIFICATE

I Ms. Tavishi hereby certify that Hemant Kumar student of Masters of Business Administration General at Amity Business School, Amity University Uttar Pradesh has completed the Project Report on INDIAN STOCK MARKET ANALYSIS AND FORECAST OF KOTAK MAHINDRA BANK LTD. under my guidance.

Ms. Tavishi Assistant Professor Department of Economics

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ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me during the writing of this project. My deepest thanks to Assistant Professor Ms. Tavishi, Department of Economics., the guide of the project for guiding and correcting various documents of mine with attention and care. She has taken pain to go through the project and make necessary correction as and when needed. I express my thanks to the Director of Amity University, Noida for extending his support. My deep sense of gratitude to Mr. Krishan Pal Singh, Sales Manager, Kotak Mahindra Bank for support and guidance. Thanks and appreciation to the helpful people at Kotak Mahindra Bank, South Ex Branch, for their support. I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

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Table Of Contents

Chapter 1- Introduction .................................................................................................. 7 1.1 About Kotak Mahindra......................................................................................... 7 1.2 Objective Of The Study...................................................................................... 10 1.3 Theoretical Framework ...................................................................................... 11 Chapter 2- Review of the literature .............................................................................. 16 Chapter 3- Research methodology and procedures ..................................................... 26 3.1 Purpose Of The Study ........................................................................................ 33 3.2 Research Design ................................................................................................. 34 3.3 Research Questions ............................................................................................ 34 3.4 Data Collection, Instruments And Analysis ....................................................... 34 3.5 Limitations ......................................................................................................... 35 Chapter 4-Data analysis and interpretation .................................................................. 36 4.1 Analysis and interpretation for 1st objective...................................................... 36 4.2 Analysis and interpretation for 2nd objective ................................................... 41 4.3 Analysis and interpretation for 3rd objective ..................................................... 48 4.4 Findings: ............................................................................................................. 52 Chapter 5-Conclusion and Recommendations ............................................................. 53 5.1 Summary Of findings ......................................................................................... 53 5.2 Discussion of Research Questions ..................................................................... 55 5.3 Recommendations .............................................................................................. 55 Reference Material ....................................................................................................... 56 References: ................................................................................................................... 57

LIST OF TABLES

Table 1 Ratios for the years 2007-2012 ....................................................................... 36 Table 2 Quarterly Data of Close Price and variables for the years 2005-12 ............... 41 Table 3 Correlation of Stock Prices and variables ....................................................... 43 Table 4 Coefficient of Correlation ............................................................................... 44 Table 5 Annova Table .................................................................................................. 45 Table 6 Regression Table For Close Price and Variables ............................................ 45 Table 7 Monthly historical data of stock prices of Kotak Mahindra Bank for the years 2010-12 ........................................................................................................................ 48 Table 8 Correlation between close price and other variables ...................................... 50 Table 9 Correlation between Close Price and variables .............................................. 51 Table 10 Coefficient of Correlation ............................................................................. 51

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INDIAN STOCK MARKET ANALYSIS AND FORECAST OF KOTAK MAHINDRA BANK LTD.

ABSTRACT Kotak Mahindra Bank Ltd. has been growing in terms of stock and financial stability in the recent years. The research analyzes the growth in share price and the financial condition of the company. The research also identifies the crucial factors which affect the Indian Stock market. The methodology for the research included various inputs to achieve three main objectives which were to analyze the growth of KOTAK Mahindra Bank Ltd in stock market using fundamental analysis, to identify and analyze the Indian stock market (BSE) and crucial factors that contribute to rise and fall in stock prices over a period of time and to predict and forecast the share prices based on technical techniques. The research has been done by secondary data which are collected through various archives, bank`s database, web database and case studies. The data is analyzed by softwares such as SPSS and Excel using statistical techniques such as Regression, Moving Averages, Ratio Analysis, Correlation etc. The research is an exploratory and conclusive research and which includes quantitative data. The conclusions and findings of the research conclude that Kotak financial stability has led to its growth of share prices. There are several factors which affect BSE Sensex but only certain factors such as Foreign exchange reserves, Price of Oil Per Barrel, Price of Gold Per Ounce, and Inflation rates are considered to be crucial factors. Kotak Mahindra Banks close prices for the month of May, June and July for 2012 were also predicted in the research and it shows the growth in the prices. The investors are satisfied with the company`s returns. However, share market of India is volatile and the company needs to work on it asset management.

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Chapter 1- Introduction

1.1 About Kotak Mahindra

Kotak Mahindra is one of India's leading banking and financial services organizations, offering a wide range of financial services that encompass every sphere of life. From commercial banking, to car finance, to stock broking, to asset management, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporate identities. The group has a net worth of ` 12,901 crore and has a distribution network through branches, franchisees, and satellite offices across cities and towns in India and offices in New York, San Francisco, London, Dubai, Mauritius and Singapore, servicing close to 10 million customer accounts. Established in 1985, the Kotak Mahindra group has been one of India's most reputed financial conglomerates. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). This approval created banking history since Kotak Mahindra Finance Ltd. is the first non-banking finance company in India to convert itself in to a bank as Kotak Mahindra Bank Ltd. Today, the bank is one of the fastest growing bank and among the most admired financial institutions in India. The bank has over 323 branches and a customer account base of over 2.7 million. Spread all over India, not just in the metros but in Tier II cities and rural India as well, it is redefining the reach and power of banking. Presently it is engaged in commercial banking, stock broking, mutual funds, life insurance and investment banking. It caters

8 to the financial needs of individuals and corporate identities. The bank has an international presence through its subsidiaries with offices in London, New York, Dubai, Mauritius, San Francisco and Singapore that specialize in providing services to overseas investors seeking to invest into India.

Products and Services The bank offers complete financial solutions for infinite needs of all individual and non-individual customers depending on the customer's need - delivered through a state of the art technology platform. Investment products like Mutual Funds, Life Insurance, retailing of gold coins and bars etc are also offered. The bank follows a mix of both open and closed architecture for distribution of the investment products. All this is backed by strong, in-house research on Mutual Funds.

The banks savings account goes beyond the traditional role of savings, and allows us to put aside a lot more than just money. The worry-free feature of Savings Account provides a range of services from funds transfer, bill payments, 2-way sweep through our ActivMoney feature and much more. We can place standing instructions for investment options that can be booked through Internet or through Phone banking services. The Savings Account thus provides for attractive returns earned through a comprehensive suite products and services that offer investment options, all delivered seamlessly to the customer by well integrated technology platforms.

Apart from Phone banking and Internet banking, the Bank offers convenient banking facility through Mobile banking, SMS services, Netc@rd, Home banking and Bill Pay facility among others.

The Depository services offered by the Bank allows the customers to hold equity shares, government securities, bonds and other securities in electronic or Demat forms.

The Salary 2 Wealth offering provides comprehensive administrative solutions for Corporates with features such as easy and automated web based salary upload process thereby eliminating the paper work involved in the process, a dedicated relationship manager to service the corporate account, customized promotions and tie - ups and

9 many such unique features. The whole gamut of investment products and investment advisory services is available to the salary account holders as well.

For the business community, the bank offer comprehensive business solutions that include the Current Account, Trade Services, Cash Management Service and Credit Facilities. The banks wholesale banking products offer business banking solutions for long-term investments and working capital needs, advice on mergers and acquisitions and equipment financing. To meet special needs of the rural market, the bank has dedicated business offerings for agricultural financing and infrastructure. Its Agriculture Finance division delivers customised products for capital financing and equipment financing needs of our rural customers.

For financial liquidity the bank offers loans that meet personal requirements with quick approval and flexible payment options. To complete the personal financial offerings space, the bank now offers Kotak Credit Card which is a hassle-free, transparent product that also happens to be the first vertical credit card in the industry. Kotak Mahindra Bank addresses the entire spectrum of financial needs of NonResident Indians. The bank has tie-up with the Overseas Indian Facilitation Centre (OIFC) as a strategic partner, which gives them a platform to share their comprehensive range of banking and investment products and services for Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs). Their Online Account Opening facility and Live Chat service helps to get in touch at the comfort of homes and at the convenience. These offerings are specifically designed to suit the overseas Indian's personal financial needs and give the global Indians a near to home feel. The bank has ousted in several fields and won many awards such as ICAI Award, Asiamaney, IDG India, Finance Asia , Kotak Royal Signature Credit Card , IR Global Rankings , IDRBT and IBA Banking Technology Awards. Company has also achieved milestones such as: Kotak Mahindra Finance Ltd started the activity of Bill Discounting, Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market Ahmedabad with effect from January 20, 2004. Kotak Mahindra Bank sets up branch in Surat. Kotak Mahindra Mutual Fund has launched Kotak Opportunities, an open-ended equity growth scheme. Kotak Mahindra Bank inks pact with Reuters

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1.2 Objective Of The Study

The research is undertaken for Kotak Mahindra Bank Ltd. It aims at three main objectives: 1. To analyze the growth of the KOTAK Mahindra Bank Ltd. analysis. using fundamental

2. To identify and analyze the stock market and crucial factors that contribute to rise and fall in stock prices over a period of time.

3. To predict and forecast the stock market based on technical techniques.

The purpose of the study focuses on growth of Kotak Mahindra Bank Ltd. and in addition, to identify the crucial factors which affect the rise and fall in stock prices of BSE. The study also focuses on forecast of share prices of the company for the month May 12, June 12 and July 12.

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1.3 Theoretical Framework

Price Per Barrel -

Cash reserve ratio rates

Inflation rates

Stock Prices
Per Dollar Price Foreign Exchange reserves(Rs.) Price Of Gold Per Ounce

Due to low labour cost and skillful manpower sectors like textile, garments, manufacturing, banking and insurance has made a significant contribution to foster the growth potentials of the economy. The Structural Adjustment Program adopted in 1991 had focused on stabilization and structural reforms in this respect the changeover from inward orientation to outward strategies has generated euphoria in the stock market. Hence the opening up of the economy has been successful in

12 spreading its tentacles over the economy. There are several factors which are directly or indirectly related to stock prices. Here while observing stock market behaviour we have taken into consideration Bombay Stock Exchange sensitive index (BSE) in our database. Due to the asymmetric information community companies and investors involved in share Market are not aware of the information for Trading. The choice under uncertainty has led to the issue of moral hazards in the capital markets. This research tries to examine the interrelationship between different determinants affecting Bombay Stock Exchange (BSE) in India. I considered the following determinants Oil prices, Gold price, Cash Reserve Ratio, Food price inflation and Foreign Exchange Reserves (Forex). Secondly the paper examines the financial stability of the company using various fundamental parameters such as Financial stability ratios, Performance indicators and Valuation parameters. Thirdly, technical techniques such as regression and correlation have been used to predict the share prices of the company. I have taken various factors such as Earning price per share, Market capitalization and P/e ratio of the company which affect the closing price of the shares. The data taken for BSE is quarterly i.e. from 2005-12, the data taken for the company`s fundamental analysis is from 2007 to 2012 and the data taken to predict stock is monthly i.e. from 2009-12. The paper is divided into two sections. In section one fundamental analysis has been done to verify the growth of the company. In the second section technical analysis has been carried out to analyze the crucial determinants of stock prices and predict the share prices of the company. The prices of oil and the stock market works in opposite direction, with the increase in oil price leads to the decrease of the return in the Indian stock market, likewise decrease in oil prices leads to the increase in the return of Stock market. The great decline of the oil prices is not the major cause of the Stock market clashes. Our profit depends on the share which we are looking for. If the oil prices increase we can switch over to other energy stocks. The most suffering countries in the oil price will be the America. The world oil market is sgold and bought in terms of dollar, so if a country wants to buy she has to change their currency to dollar first.

13 There can be a great advantage for the investors regarding the oil price increase , if he buys one barrel of oil for 30 dollar after few months if he price increases to 50 dollar per barrel .So ,it shows that if he sells he will earn a profit of 20 dollar per barrel ,which will be great profit for the investor. Besides it is noted that daily oil consumption will increase and since the largest oil producing countries Saudi Arabia nearly meet its end it might be a great chance to buy shares in this sector.

CRR is Cash Reserve Ratio. It refers to keeping a portion of net demand and time liabilities (NDTL) of banks with the central banks (In India its Reserve Bank of India, RBI). Central bank fixes this percentage of NDTL. Central bank can change this percentage as a monetary measure to control the availability of funds in the economy i.e. to inject liquidity or to suck liquidity. RBI doesnt pay any interest on such funds held with it. The following are the demand liabilities of banks. Banks should pay these liabilities on demand which may come at any time. All liabilities which are payable on demand; they include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/guarantees, balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, Demand Drafts (DDs),unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand. Time Liabilities are those which are payable otherwise than on demand; they include fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, deposits held as securities for advances which are not payable on demand and Gold Deposits. When a central bank increases CRR, the banks need to reduce the outflow of money by reducing the loans to customers and keep additional amount with the central bank

14 Inflation is a rise in prices of several items over a period of time. It is measured through various indices and each provides specific information about the prices of items that it represents. The index could be the Wholesale Price Index (WPI) or the Consumer Price Index (CPI) for specified categories of people like agricultural workers or urban non-manual employees. Each of the indices is created in a specific manner with a certain year as the base year and they consider the price change over a year. To tame inflation, the government usually hikes interest rates. This tends to make debt instruments attractive relative to equities as the former carry a lower risk (small savings instruments are risk free as they are guaranteed by the government). This results in some amount of investments shifting from equity to debt. However, high inflation is not always bad and low inflation need not always be good for equity markets, as the impact will differ for companies and sectors across different time horizons. The first thing to consider is the items where prices are rising. For example a rise in oil prices will impact a wide range of items from food products to those that require transportation.

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Chapter 2- Review of the literature

The nature of equity market in India has undergone profound change over the last 20 years. This affects the trend of capital market. The significant developments include the introduction of screen-based electronic trading platforms and the dematerialization of shares and shareholding. These developments have permitted the implementation of a straight-through-processing settlement as well as enabling risk management to develop the very sophisticated automatic mechanisms. The capability and efficiency of trading and settling arge volumes of shares through this streamlined process have made Indias financial markets significantly more attractive to global investors. The Indian stock and investment market is mainly divided into two parts, namely the capital market and the money market. The stock market is an important part of the capital market in the country through which one can carry out the transaction of capital. It is usually done through the means of direct financing by security and investment. The investment markets classically classified as Primary market and Secondary market. Stock market is one of the major economic reflectors. Indian economy is currently emerging as a global super power. The research paper by (Choudhuri, Bandyopadhyay, Roy and Ghosh, 2006) examines the interrelationship between different determinants affecting Bombay Stock Exchange (BSE) in India. In this paper we considered the following determinants Oil prices, Gold price, Cash Reserve Ratio, Food price inflation, Call money rate, Dollar price, F D I, Foreign Portfolio Investment and Foreign Exchange Reserve (Forex). It is a well known fact that Dollar price or money exchange rate has a great influence on BSE Sensex. Our research identifies the level of influence of dollar price on BSE Sensex. The oil price of India is dependent on International Oil market. Any developing economy like India is dependent on Oil price, so we tried to find out if oil price influences the BSE Sensex. The strength and stability of the host countrys currency is measured by the level and volatility of call money rates. Gold price is included in the model as an additional variable, to examine whether gold price contain any additional significant

17 relation with share price movements. Since gold has an asset value it works as an important savings material. The technology transfer in terms of innovation and inventions to the developing country like India in phase of Globalization in terms of FDI and Foreign Portfolio Investment has an impact on the volatility in the BSE Sensex. The macroeconomic stability of any developing economy is highly dependent on food price inflation. Its impact on BSE Sensex can be analyzed. The potentials of the economy are strengthened by the foreign exchange reserve which has some impact on Stock market. The authors have impressively carried out the relationship between BSE Sensex and the variables effectively. The relationship has to be analysed by using softwares. In the research article by (Shah and Bhingarkar, 2007) stock data has been analyzed in softwares such as excel & SPSS and predicted.. Data-acquisition involves gathering signals from measurement sources and digitizing the signal for storage, analysis and presentation on a PC. Analysis and prediction is very necessary in todays market for the accurate utilization of funds at hand. For analysis, there has to a proper system where in the required data is first acquired from the destination. This data then needs to be analysed using any analysis model. Currently there are many analysis models available in the market. These models are based on the past behaviour of the stocks. However, it is seen that there is no model which predicts the future behaviour of the stocks. For this reason, a model is developed which not only analyses the stocks but also predicts its future behaviour based on the past conduct. Next, in the paper by (Martikainen, 2008), he investigates which economic dimensions of the firm are reflected in stock price behaviour in the Finnish stock market. Twelve financial ratios are then selected to represent these four dimensions. All the firms common series listed for the whole 1974-1986 period are included in the empirical analysis. All of the dimensions above are found in the empirical classification pattern of ratios. On the cross-sectional level, profitability and financial leverage are reported as determinants of stock price behaviour. Corporation growth is merely connected to the risk of the common stock. Somewhat weaker results concerning the association between stock price behaviours and operating leverage factor may be due to difficulties measuring operating leverage on an empirical level. When studying the intra-year explanatory power of financial ratios, it is reported that the explanatory power of financial ratios tends to increase when the reporting day approaches, and starts to decrease after that releasing day of financial statement

18 numbers. Empirical evidence strongly indicates that financial ratios represent pricing relationships in a substantive manner. The research involves prediction of stock prices using regression analysis. The research paper by (Olaniyi and Kayode S, 2009) predicts stock using regression equation and least square method. A cross a wide variety of fields, different data are being collected and accumulated at a dramatic pace. The amount of these data generated and stored is growing exponentially, due to the continuing advances in computer technology. This presents tremendous opportunities for those who can unlock the information embedded within this data. However, these challenges has called for an urgent need for a new generation of computational theories and tools to assist humans in extracting useful information (knowledge) from the rapidly growing volumes of digital data. These theories and tools are the subject of the emerging field of knowledge discovery in databases. Knowledge discovery out of the collected data can be done using a technique called Data Mining. A commonly accepted definition of data mining which is a process of selecting, exploring and modelling large quantities of data to unravel previously unknown patterns for the purpose of business and commercial advantage. In this paper, the serial movement of stock prices over a period of time extracted from the daily official list of Nigerian Stock Exchange, are used in building a database and values of variables were extracted from the database to predict the future values of other variables through the use of time series data that employed moving average method. The research also investigates how to make use of this rich data to predict financial market prices in the banking sector of Nigerian economy using three banks as a case study. We predict stock market prices using information contain in daily and weekly activity summaries (equities) published by Nigerian Stock Exchange. The uncovered patterns and the predicted values from the database assist the stock brokers and investors in making complex decision in stock market activities thereby reducing the risk in stock investment. In the research by (Kali, 2008), he attempts to explore the possible links between policy and stock price behaviour in Indian corporate sector. A sample of 500 listed companies from BSE are examined for the years 19962006.Dividend policy has always been a source of controversy despite years of theoretical and empirical research both in developed countries and emerging

19 economies .The paper features a panel data approach to analyze the relationship between dividend-retention ratio and stock-price behaviour while controlling the variables like size and long-term debt-equity ratio of the firm. The sample is taken across six different industries namely electricity, food and beverage, mining, nonmetallic, textile and service sector. The results are based on the fixed-effect model, as these perform statistically better than random effects and pooled OLS model. Results of the fixed-effect models indicate that dividend-retention ratio along with size and debt-equity ratio plays a significant role in explaining variations in stock returns. The fixed effect models show the presence of firm level effect in explaining the possible links between dividend policy and stock price behaviour of the firm. In another words it exhibits the possibility of clientele effect effect in case of some industries. Therefore the model helps to understand the intricacies of dividend policy and stockreturn behaviour in Indian corporate sector for the same period. Stock market has been considered volatile in nature. The research paper by (Raju and Ghosh, 2009) examines the volatility of Indian stock market as compared to other markets. Volatility estimation is important for several reasons and for different people in the market. Pricing of securities is supposed to be dependent on volatility of each asset. In this paper they not only extend the study period of the earlier paper but also expand coverage in terms of number of countries and statistical techniques. Mature markets / Developed markets continue to provide over long period of time high return with low volatility. Amongst emerging markets except India and China, all other countries exhibited low returns (sometimes negative returns with high volatility).

Comparatively, Indian market shows less of skewness and Kurtosis. Indian markets have started becoming informationaly more efficient. Contrary to the popular perception in the recent past, volatility has not gone up. Intraday volatility is also very much under control and has came down compared to past years. The hypothesis of this research include the study of fundamental and technical analysis. The research article by (Venkatesh and Tyagi), 2011 tends to figure out the use of fundamental and technical analysis. The paper reports the results of a questionnaire survey in September, October/November 2010 on the use of Fundamental and Technical analysis by brokers/fund managers in Indian stock market to form their forecasts of share price movements. The findings of the research reveal that more than 85 percent of the respondents rely upon both Fundamental and Technical analysis for predicting

20 future price movements at different time horizons. This paper envisages on different trends of the stock market and it relates the trends towards the usage of Fundamental and Technical analysis. The results show that when the market is bullish participants rely more upon Technical analysis and when the market is bearish it is the other way round the participants rely upon the Fundamental analysis. This paper gives special emphasis on the usage of these tools while taking positions in Large Cap, Mid cap and Small Cap companies. For this purpose various companies across the sectors were chosen, which includes, Banking, Information Technology, Manufacturing, Pharmacy etc. The study covers different Organizational set ups such as, Licensed Broking firms, Licensed Banks, Mutual Fund Companies, Equity research firms and others. The study was conducted in all major Indian cities by serving a structured questionnaire to individuals such as, Directors, Fund Managers, Research Analysts, Senior Brokers, Junior Brokers, Portfolio managers and others. In relation to the research to predict stock price, the research paper by (Abirami and Vijaya, 2009) state that stock price prediction depends on various factors such as fundamental, technical and technological. Prediction of the stock price is an important issue in finance. Since the predicted value is used decide whether to buy or leave the share. The Stock price prediction is time varying and depends upon its past information. It is used to determine the future value of a company stock or other financial instrument traded on a financial exchange. The successful prediction of a stock future price could yield significant profit. Also since the stock price varies every day, stock price forecasting is a challenging and important task. Hence an efficient automated prediction system is highly essential for stock forecasting. In this paper online support vector regression is employed for predicting the stock price, as it is required to incrementally learn the daily updates effectively without relearning the historic data again. The stock data for the period of four years has been collected and trained using OSVR with c and epsilon parameter settings. The performance of the trained model is evaluated and found that the online support vector regression model produced 96% accuracy with threshold. Next, the research paper by (Higgins, 2009) develops a stock price prediction model based on quarterly earnings forecasts. The prediction model is based on the residual income model by Ohlson (1995), and adjustment for auto-correlation by Higgins (2009). Prior research has not used

21 quarterly data out of concern for seasonality, however seasonality can be removed by including four consecutive quarterly terms of abnormal earnings in each price equation. The prediction results suggest that quarterly earnings forecasts can be useful inputs to models of price forecasts. Several research papers have identified determinants of stock prices. In contrast to it, the research article by (Balke, 2010) shows that the data has difficulty distinguishing between a stock price decomposition in which expectations of future real dividend growth is a primary determinant of stock price movements and a stock price decomposition in which expectations of future excess returns is a primary determinant. The inability of the data to distinguish between these very different decompositions arises from the fact that movements in the price-dividend ratio are very persistent while neither real dividend growth nor excess returns are. From a market fundamentals perspective, most of the information about low frequency movements in dividend growth and excess returns is contained in stock prices and not the series themselves. As a result, the data is incapable of distinguishing between the two competing decompositions. He further shows that this inability to identify the source of stock price movements is not solely due to poor power and size properties of our statistical procedure, nor is it due to the presence of a rational bubble. Another aspect of the research aims at examining the stock market efficiency and price tend which is examined by the research paper by (Gupta, 1990). The study is aimed at testing the appropriateness of the random walk model in the Indian Stock Market for a recent period 1979 87. Using data of prices for five shares indices from the Bombay Stock Exchange during this period, both the tests -serial correlation and runs analysis, have generally supported the independence assumption of the random walk model. The research paper by (Janall, 2009) provides support to it. It analyzes serial correlation in stock returns, and informational role of volume and volatility in Polish and Slovakian stock markets. Results indicate that prices tend to overshoot to new information in the Slovakian market, while new information gets impounded into prices with a one-day lag in the Polish market. In the context of feedback trading models, the Slovakian stock market seems to be dominated by traders who sell high and buy low, while stop-loss or distress selling type traders prevail in the Polish market. Also, the research article by (Sunitha, 2007) examines that over the past few years, many firms have announced significant number of stock repurchases. The overwhelming reason given for stock repurchase announcements has

22 been to reverse a trend of declining stock prices. Share buy backs have become an important area in financial research considering its strong implications for corporate policy. Indian companies have been permitted to buy back shares after the provisions of the Companies Act 1956 were suitably amended in 1999. Several studies have provided conclusive proof of signalling effect of stock repurchase and dividends announcements. This paper investigates and tests the following: 1) Signalling effect of a share buy - back and dividend announcements 2) The market reaction and share price behaviour to announcements of stock repurchases and dividends 3) Abnormal Returns across various repurchase levels. The analysis uses data of 22 firms in the BSE 500 index, which has announced stock repurchase option and dividends during the period 2002-2004. An examination of share price trend around stock repurchases and dividends prove the signalling effect of these announcements. Stock repurchase programs recorded a high cumulative abnormal return of 3.2 percent within two days of the event whereas dividend announcement recorded a high cumulative abnormal return of 2.1 percent within one day of the event. There is no significant difference in abnormal returns as result of various repurchase levels. These results imply the strong signalling power of stock repurchases announcements and that the market reacts more favourably to repurchases compared to dividend announcements. Prediction of stock prices can also be done on the basisi of fundamental analysis. The research paper by (Elleuch, 2009) examines whether a simple fundamental analysis strategy based on historical accounting information can predict stock returns. The papers goal is to show that simple screens based on historical financial signals can shift the distribution of returns earned by an investor by separating eventual winners stocks from losers. Results show that historical accounting signals can be used to improve the entire distribution of future returns earned by an investor. In fact, despite the overall down activity of the market over the sample period chosen, results reveal that fundamental accounting signals can be used to discriminate from an overall sample generating future negative returns of -0,116 a winner portfolio that provide positive future return of 0,019 from a loser one generating a negative return of -0,229. The overperformance of the winner portfolio seems to be attributable to the ability of the fundamental signals to predict future earnings. In fact, results show that fundamental signals have a positive and significant correlation with future earnings performance and that the winner portfolio have a future earnings realisation (0,100) that

23 outperforms that of the loser portfolio (-0,012). Fundamental analyses also plays an important role in arbitrage. The research paper by (Desai, Venkataraman and Krishnamurthy, 2010) examines whether information arbitrageurs attempt to exploit the return predictability in valuation and fundamental signals. Using a unique database of short sell recommendations, we document that firm fundamentals, such as magnitude of accruals, sales growth, gross margin, and SG&A expenses, and valuation indicators, such as book-to-market ratio and return momentum, contain valuable information correlated with the trading behaviour of short sellers. We show that our empirical model explaining short seller recommendations is successful in predicting both short interest and future returns for a broader sample in an out-ofsample period. We present an important application of the model in distinguishing between valuation and arbitrage motivated short selling. Overall, these findings present additional insights into the decision process of short sellers and validate the importance of fundamental analysis in the information arbitrage process. Also, the research paper by (Das and Pattanayak, 2009) examines the various research studies undertaken in the Indian and international context highlighting the effect of various fundamental factors on the behaviour of the stock market. This paper tries to identify the critical variables which have a significant effect on stock price movements and influence the entire market's movement. The 30 shares constituting the Bombay Stock Exchange-Sensitivity Index (BSE-SENSEX or SENSEX) are used as proxies to capture the entire stock market's movement. Appropriate statistical techniques have been used to establish a meaningful relationship among various explanatory variables identified through the empirical analysis considering the available research studies. The explanatory variables, which act as major determinants of stock price movements, are condensed into a few critical factors by factor analysis and the relevance of these factors in influencing stock market movements is explained in detail. The analysis shows that higher earning power, Returns on Investment (ROIs), growth possibility and favourable valuation have a positive impact on the share price and stock market movement, while higher risk and volatility have a negative impact. These factors can be used as major analytical tools by investors, corporations and brokers to make rational and intelligent investment decisions. Stock market is one of the most popular investing places because of its expected high profit which is examined by the research article by (Ravichandran, Thirunavukarasu, Nallaswamy and Babu, 2010).

24 Traditionally, technical analysis approach, that predicts stock prices based on historical prices and volume, basic concepts of trends, price patterns and oscillators, is commonly used by stock investors to aid investment decisions. Advanced intelligent techniques, ranging from pure mathematical models and expert systems to fuzzy logic networks, have also been used by many financial trading systems for investing and predicting stock prices. In recent years, most of the researchers have been concentrating their research work on the future prediction of share market prices by using Neural Networks. But, in this paper we newly propose a methodology in which the neural network is applied to the investors financial decision making to invest all type of shares irrespective of the high / low index value of the scripts, in a continuous time frame work and further it is further extended to obtain the expected return on investment through the Neural Networks and finally it is compared with the actual value. The proposed network has been tested with stock data obtained from the Indian Share Market BSE Index. The research shows the study of financial ratios of the company which is explained by the research paper by (Nenide and Wisconsin, 2009). The paper follows that a review of published research in the field of accounting and finance reveals that the use of ratio calculations with multivariate analysis for predicting the performance of business firms is common. However, much of this research uses large database information without determining if needed sample assumptions can be met for reliable conclusions to be drawn by the researchers. This paper presents recommended adjustment techniques for researchers using large databases for ratio calculation to allow for confidence that the results of analysis will be meaningful and that inferences may be drawn from the data. Using a sample from the Kauffman Center for Entrepreneurial Leadership Financial Statement Database, Balance Sheet and Income Statement data of 250 firms is used to illustrate and explain techniques for data error identification, handling the problem of denominators being negative or approaching zero when calculating ratios, and effective techniques for transforming the data to achieve approximation of normal distributions. The application of these recommendations will allow researchers to use financial statement data samples that will meet required characteristics for the use of valid multivariate statistical analysis. The research is based on Bse index. The research paper by (Verma, 2011) elaborates stock price indices are used extensively by investors, brokers and portfolio managers as a general indicator of the stock market

25 conditions. They are also used extensively in finance theory notably in operationalizing the popular Capital Asset Pricing Model (CAPM). In recent years, the indices published by the Bombay Stock Exchange (BSE) - the Sensitive Index (Sensex) of 30 scrips in Bombay and the 100 share National Index (Natex) - have become extremely popular with academics and practitioners alike. Anecdotal evidence suggests that the Sensex is by far the more popular index among brokers and lay investors while the Natex is the index of choice among mutual funds, professional investors, foreign investment agencies and academics. This paper studies the two BSE indices and their inter-relationship. The analysis in this paper indicates: Sensex is more volatile than Natex, but this difference is accounted for by two factors - (a) the autocorrelation of the Natex which conceals the true volatility of Natex, and (b) a higher beta of Sensex relative to Sensex. Therefore, the excess volatility of Sensex is not a matter of serious concern. In many applications, however, the higher beta of Sensex is worrisome, but it is easy to correct for it. The conclusion, therefore, is that those who follow the Natex because of its greater comprehensiveness and theoretical appeal may be mistaken. The Sensex needs to be taken more seriously as a sound market index. The observed deficiencies of the Natex raise several disturbing questions for finance theorists and researchers. Prediction of stock is also the main concern of this research. Therefore, in the research paper by (Sureshkumar and Elango, 2010) , the author states forecasting accuracy is the most important factor in selecting any forecasting methods. Research efforts in improving the accuracy of forecasting models are increasing since the last decade. The appropriate stock selections those are suitable for investment is a difficult task. The key factor for each investor is to earn maximum profits on their investments. Numerous techniques used to predict stocks in which fundamental and technical analysis are one among them. In this paper, prediction algorithms and functions are used to predict future share prices and their performance will be compared. The results from analysis shows that isotonic regression function offers the ability to predict the stock prices more accurately than the other existing techniques. The results will be used to analyze the stock prices and their prediction in depth in future research efforts.

26

Chapter 3- Research methodology and procedures

The research undertaken is an exploratory and descriptive research which used collection of secondary data. The data was quantitative. The research included data collection through various secondary sources such as archives, bank sources, case studies and internet. The research included 2 hypotheses which are: -Hypothesis 1= Relationship between BSE and variables H0= There is no relationship between Close price of BSE and other variables H1= There is relationship between Close price of BSE and other variables

-Hypothesis 2= Kotak Mahindra Bank Ltd stock prices grew as it grew financially. H0= Kotak Mahindra Bank Ltd stock prices grew as it grew financially. H1= Kotak Mahindra Bank Ltd stock prices did not grow in the market.

The study was conducted on the basis of fundamental and technical techniques which are categorized as follows:

27 1.What is Fundamental Analysis? The main goal of fundamental analysis is to find out intrinsic value of stock, means primary assumption for fundamental analysis is that the price on the stock market does not reflect the true value of stock (share). In a nutshell, focus of fundamental analysis is to determine true value of stock by focusing on various factors like growth, companys actual business, companys financial strength and its future prospects.

Attributes of fundamental analysis? Fundamental analysis mainly in three parts: 1. Financial stability ratios 2. Performance indicators 3. Valuation parameters 1. Financial stability ratios: These ratios are useful to check inherent financial strength of company and its cash flow patterns.

a) Debt-Equity ratio:

This ratio provides leverage situation of company in the sense that it compares companys total liabilities to total shareholder equity. b) Interest Coverage ratio:

This ratio indicates how easily can company pay interest on its outstanding debts.

28 c) Current ratio:

Current ratio = Current Assets / Current Liabilities This ratio indicates companys liquidity condition, in terms of paying of short -term liabilities from its short-term assets.

2. Performance indicators: These ratios are useful to check performance of the company. a) Operating Margin:

Operating income indicates Earnings Before Depreciation, Interest and Taxes. This ratio indicates net profitability of the operation of the business. b) Net Margin: Net Margin = Net Profit / Net Sales * 100 Net Profit is derived after depreciation and payment of interest and taxes. Higher the margin better it is.

c) Return on Assets (ROA):

29 This ratio indicates how profitable the company is relative to its assets and ability of management in generating profits from assets. d) Return on Equity (ROE): Return on Equity = Net Income/Shareholder's Equity This is perhaps Warren Buffets favourite parameter. This ratio provides percentage return on shareholders equity. e) Return on Capital Employed (ROCE): ROCE = Net Profit / (Total Debt + Total Share Capital) * 100 This ratio indicates how profitable the company is relative to total capital employed and ability of management in generating profit out of it. f) EBIT Growth: EBIT Growth = (This Years EBIT / Last Years EBIT 1) * 100 This ratio provides growth percentage in EBIT (Earnings Before Interest and Taxes) term. g) PAT Growth: PAT Growth = (This Years PAT / Last Years PAT 1) * 100 PAT indicated Profit After Tax (Net Profit). h) EPS Growth: EPS Growth = (This Years EPS / Last Years EPS 1) * 100 EPS indicates Earnings Per Share. i) BV Growth:

30

BVPS indicates Book Value Per Share.

3. Valuation Parameters:

First of all, valuation ratios are related to CMP (Current Market Price). So, they are quite volatile in general. As someone rightly said profits are made when you buy and not when you sell, so in that regard valuations are key. But in general, valuations have significance after particular stock is passed through criteria of above two sections. (sometimes its easiest to ignore any scripts just on the basis of valuations like, 100 PE stock with only around 15-20% growth) a) PE: Market Value per Share Earnings per Share (EPS) PE Price to Earnings, perhaps the most looked parameter. In general, stocks with higher forecast earnings growth will have higher PE and those expected with lower earnings growth will have lower PE. b) P/B:

31

P/B Price to Book, very important ratio for value investors (historically, these group of investors have made most money out of stock market). c) Dividend Yield: Dividend Yield = Dividend per share / CMP This indicates dividend return in percentage terms of total investments. d) PEG: PEG = PE / Earnings Growth PEG PE to Growth, Peter Lynchs parameter. This ratio provides relative values of PE and growth projections.

2. Technical analysis Technical analysis is all about studying stock price graphs and a few momentum oscillators derived thereof. It must be understood that technical studies are based entirely on prices and do not include balance sheets, P&L accounts ( fundamental analysis ), the assumption being that the markets are efficient and all possible price sensitive information is built into the price graph of a security / index. Therefore, technical analysis supports the efficient market theory as against the "random walk theory" which supports the belief that stocks can be bought / sold on random events. If the prices fluctuate ever often, is there a way to forecast them which is Technical Analysis. It involves medley of science and art without any empirical formulae. It

32 includes study of price charts and oscillators derived thereon. Capital management techniques and no risk are the main elements of technical analysis.

The techniques that include in technical analysis and which were used in this study are: a) Regression analysis

b)

Regression analysis is any statistical method where the mean of one or more

random variables is predicted based on other measured random variables. There are two types of regression analysis, chosen according to whether the data approximate a straight line, when linear regression is used, or not, when non-linear regression is used. A regression line is a line drawn through a Scatter plot of two variables. The line is chosen so that it comes as close to the points as possible. Regression analysis, on the other hand is more than curve fitting. It involves fitting a model with both deterministic and stochastic components. The deterministic component is called the predictor and the stochastic component is called the error term. The simplest form of a regression model contains a dependent variable, also called the "Y-variable" and a single independent variable, also called the "X-variable".

b)

Karl Pearson Coefficient of Correlation

Pearson's correlation coefficient between two variables is defined as the covariance of the two variables divided by the product of their standard deviations

c)

Moving Averages

33

A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.

3.1 Purpose Of The Study

The research is undertaken for Kotak Mahindra Bank Ltd. It aims at three main objectives: 1. To analyze the growth of the KOTAK Mahindra Bank Ltd. analysis. using fundamental

2. To identify and analyze the stock market and crucial factors that contribute to rise and fall in stock prices over a period of time.

3. To predict and forecast the stock market based on technical techniques.

The purpose of the study focuses on growth of Kotak Mahindra Bank Ltd. and in addition, to identify the crucial factors which affect the rise and fall in stock prices BSE. The study also focuses on forecast of share prices of the company for the month May 12, June 12 and July 12.

34

3.2 Research Design

Research design is considered as a "blueprint" for research, dealing with at least four problems: which questions to study, which data are relevant, what data to collect, and how to analyze the results. The research conducted was an exploratory as well as a descriptive research as it focuses on specific hypothesis and it is also conclusive. The information needed for the research was more of quantitative in nature which included data regarding BSE and variables such as gold prices, oil prices, dollar prices.........etc. The information was collected through reading various research papers, archives and case studies. The data used was secondary data. The method used for collecting data was direct observation. Collected data was analysed using Spss and Ms excel. The research is divided into 2 sections. The first section consists of fundamental analysis of the company and second section consists of technical analysis of the stock of the company.

3.3 Research Questions

The research questions were regarding the company itself: -How has KOTAK grown in terms of stock market in the past years ? - What will be the future market prices of the shares of the company ? - What are the crucial factors that determine the rise and fall in the stock prices of BSE?

3.4 Data Collection, Instruments And Analysis

35 The data was collected through direct observation of the sources such bank archives, internet and case studies. The source for each data has been mentioned in the report. The data analysis was done on SPSS and Ms excel . The data analysis used techniques like fundamental analysis of Financial stability ratios, Performance indicators and Valuation parameters and technical analysis which included regression, correlation, factor analysis and moving average forecast.

3.5 Limitations

The research included the following limitations: The data included data over a period of 7 years. Hence the data would not be 100% accurate The data analysis includes ratio analysis which is subjected to historical data. The prediction and conclusion of the research is feasible only if management works effectively and efficiently. Future uncertainties and crisis were not taken into the while conducting the research. Stock prices keep on changing day by day. Hence the research does not give the exact value but a rough idea about the companys stock. .

36

Chapter 4-Data analysis and interpretation

4.1 Analysis and interpretation for 1st objective

The first objective aims at analysis of Kotak Mahindra Bank Ltd. by using fundamental techniques. The objective focuses to analyze the growth of the company in the past 6 years. The analysis involves calculation and examination of the Financial ratios, Valuation parameters and performance standards which conclude that the company has grown in the market. Table 1 Ratios for the years 2007-2012 Particulars Operational & Financial Ratios Total Debt/Equity(x) Interest Coverage ratio: Current Ratio(x) Earnings Per Share (Rs) DPS(Rs) Book NAV/Share(Rs) Mar12 Mar 20 11 Mar 20 10 Mar 20 09 Mar 20 08 Mar 20 07

0.06 1 0.87 13.7 0.6 107.3

0.07 1.00 0.59 11.10 0.50 92.23

0.09 1.00 0.52 16.12 0.85 128.83

0.06 1.00 0.58 7.99 0.75 110.33

0.10 1.00 0.56 8.53 0.75 102.58

0.07 1.00 0.62 4.33 0.70 50.08

Performance Ratios Operating Profit Growth Net Profit Growth BVPS Growth Advances Growth EPS Growth(%) ROA(%) ROE(%) 709.54 42.87 44.32 16.3 32.55 32.7 1.9 15.05 41.98 45.82 -28.41 41.18 -31.11 1.85 14.50 54.79 103.23 16.77 24.96 101.79 1.70 13.52 22.31 107.92 -6.07 7.56 6.90 -6.34 0.97 7.51 -97.95 42.37 96.75 1.22 11.37 19.57 81.65 72.08 13.39 0.94 11.37 450.97

37 ROCE(%) 8.34 7.35 6.68 6.92 7.08 6.00

Valuation Parameters PER(x) PCE(x) Price/Book(x) Yield(%)

48.54 43.08 3.56 0.12

41.14 36.73 4.95 0.11

23.24 40.05 5.81 0.11

17.71 28.30 2.56 0.27

36.85 62.83 6.13 0.12

55.33 88.83 9.58 0.15

Table 1 shows the three parameters to analyze the growth of Kotak Mahindra Bank Ltd. The data have been calculated for the past 6 years starting from 2007 to 2012. The ratios above have been calculated through the following approach: Based on Operational and financial ratio: Debt equity ratio of the company signifies proportion of equity and debt the company is using to finance its assets. The debt-equity ratio of the company for 6 years i.e. from 2007 to 2012 is less than .10 which indicates that a lot of debt has not been used to finance increased operations (high debt to equity), the company. The company has been able to maintain more of equity than liabilities which is a good sign.

The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:

An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. The interest coverage ratio comes to be greater than 1 for 6 years for the company. Hence the company is able to generate sufficient revenues in order to meet the interest expenses.

A liquidity ratio that measures a company's ability to pay short-term obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if

38 they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing. The company`s current ratio is less than 1 for the past 6 years i.e. from 2007-2012. Therefore the company needs to work to increase its current ratio. However the company is not going to be bankrupt as other financial parameters are in favour of the company. A ratio used to measure a company's pricing strategy and operating efficiency. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc.

Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each rupee of sales. If a company's margin is increasing, it is earning more per dollar of sales. The higher the margin the better. Since, the growth operating profit for the company has been high since 2008, it shows that the company has been earning well. It indicates that every rupee has been earning well for the company.

Net Profit Growth A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. The company`s net profit growth has been exceptionally great except for 2009 which is -6.07.Hence the company`s net profit to its sales relation has been impressive which eventually indicates financial stability.

Return On Asset

39 An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The company`s ROA for the years 2007-12 have been upto 2% which is not impressive. The major reason would be the company is a service based company. However there has been growth in the ROA over the years which implies good condition of the company. Return On Equity The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The ROE for the company has been increasing since 2007 which states that the company has been generating good returns on the shareholders wealth. It was nearly 8%, in 2009, but it rose to 15% approx. By 2012 it has been able to maintain its ROE at 15%. Hence the company has been able to generate sufficient earnings on shareholders wealth.

Book Value per Share While book value of equity per share is one factor that investors can use to determine whether a stock is undervalued, this metric should not be used by itself as it only presents a very limited view of the firm's situation. BVPS provides a snap shot of a firm's current situation The company`s book value per share growth has been low in 2009 and 2010. However the rates have been significant in 2007, 2008, 2011 and 2012 which shows that the company increased its book value in those years.

Earnings per Share Growth The Eps growth rate has been positive for the company in 2008 and 2010 with an impressive figure of over 90%. However the rate jumped to negative in 2007 and 2011. If we analyze the Eps for the years, it has been positive and in good figures as seen in the table.

40

P/E ratio A valuation ratio of a company's current share price compared to its per-share earnings. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.

The P/E ratio for the company has been above 20 in most of the years which implies that investors are ready to pay Rs. 20 for every 1 rupee of earning in the company. It is the most looked parameter for an investor before investing in a company. P/e Of the company has been increasing since 2007 which indicates that investors have been getting increased earnings for the past 6 years.

P/B Ratio A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.

A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. As with most ratios, be aware that this varies by industry. Since the P/b ratio of the company is higher than 1 in all the 6 years i.e. from 2007 to 2012, it indicates that the company`s stock is not undervalued.

The dividend yield (%) indicates how much the company is able to pay as dividend to its investors. The yield is greater than 10% for the past 6 years. Hence the company has been able to earn sufficient profits. It also indicates that the company has been able to provide its investors with regular dividend.

41

4.2 Analysis and interpretation for 2nd objective

Table 2 Quarterly Data of Close Price and variables for the years 2005-12 YEAR CLOSE PRICE Price per barrel( USD)
49.707 53.043 63.080 60.033 63.347 70.530 70.443 60.093 58.130 64.970 75.500 90.850 97.953 123.963 117.983 58.370

Crr RATES (%)

Inflatio n Rates

Dollar Price( INR)

Forex Rs.( in crores)

Gold Per 1 ounce( Rs.)

Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2200 8 Q3 2008 Q4 2008

6492.82 7193.85 8634.48 9397.93 11280 10609.3 12454.4 13786.9 13072.1 14650.5 17291.1 20287 15644.4 13461.6 12860.4 9647.31

0.05 0.05 0.0525 0.0525 0.05 0.0525 0.05 0.0525 0.06 0.0625 0.07 0.075 0.075 0.0775 0.09 0.055

0.0417 0.0332 0.0364 0.0533 0.0457 0.0728 0.064 0.0595 0.0672 0.0569 0.064 0.0552 0.0788 0.077 0.0977 0.1045

43.58 43.71 43.94 45.97 44.35 46.19 46.38 44.5 44.11 40.27 40.63 39.39 40.33 42.38 43.25 49.94

6,20,943 6,08,413 6,32,778 6,50,909 6,49,253 7,49,007 7,65,218 7,85,931 8,64,573 8,65,300 9,41,247 10,79,243 12,31,832 13,42,380 13,50,213 11,98,239

18667 19005 20806 23090 25937 28246 27521 27972 28763 26493 29607 32862 37452 40024 41541 42374

42
Q1 2009 Q2 2009 Q3 2009 Q4 2009 9708.5 14493.8 17126.8 17464.8 42.960 59.543 68.203 76.067 0.05 0.05 0.0525 0.05 0.0803 0.0929 0.1165 0.1351 51.88 46.96 49.03 46.27

12,73,257 12,68,147 13,53,607 13,28,189

47514 44767 47901 50607

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012

17527.8 17700.9 20069.1 20509.1 19445.2 18845.9 16453.8 15454.9 17404.2 16718.9

78.627 77.890 76.167 85.027 93.980 102.553 89.710 94.063 102.893 103.890

0.055 0.0575 0.06 0.0625 0.06 0.055 0.055 0.0525 0.055 0.0525

0.1486 0.1372 0.0981 0.0833 0.0882 0.0863 0.1005 0.0934 0.0689 0.0755

46.14 47.95 46.81 45.34 44.94 44.84 46.08 53.36 49.27 55.6

12,66,569 12,73,921 13,24,937 13,38,638 13,68,708 13,95,599 15,42,878 15,84,605 14,97,000 15,99,800

49915 57778 58730 62847 64172 67300 79339 81304 85460 87504

Interpretation of Table 2:

Table 2 shows the quarterly historical data for BSE, Price of oil per barrel, Cash reserve ratio rates, Inflation rates, Value of a dollar in INR, Foreign exchange reserves and Value of Gold per ounce from the year 2005 to 2012 .In order to analyze the relationship between BSE and the variables, correlation technique and regression analysis have been used in SPSS which gave the following results:

43

Table 3 Correlation of Stock Prices and variables

Correlations Dollar Price per CLOSE CLOSE Pearson Correlation Sig. (1-tailed) N Price per barrel Pearson Correlation Sig. (1-tailed) N Crr RATES(%) Pearson Correlation Sig. (1-tailed) N Inflation Rates Pearson Correlation Sig. (1-tailed) N Dollar Price( INR) Pearson Correlation Sig. (1-tailed) N Forex Rs.( in crores) Pearson Correlation Sig. (1-tailed) N Gold Per 1 ounce( Rs.) Pearson Correlation Sig. (1-tailed) .000 .001 .374 .002 .000 .000 .000 30 .629
**

Forex Rs.( in crores) .675

**

Gold Per 1 ounce( Rs.) .629

**

Crr RATES(%)

Inflation Rates .520

**

Price( INR) .000

barrel .553
**

.288

.001 30 .553
**

.062 30 .631
**

.002 30 .258

.499 30 -.037

.000 30 .651
**

.000 30 .565
**

30 1

.001 30 .288 30 .631

**

.000 30 1

.084 30 .034

.424 30 -.540
**

.000 30 .217

.001 30 -.061

.062 30 .520
**

.000 30 .258 30 .034

.430 30 1

.001 30 .357
*

.125 30 .677
**

.374 30 .519
**

.002 30 .000

.084 30 -.037

.430 30 -.540
**

.026 30 .357
*

.000 30 .478
**

.002 30 .625
**

30 1

.499 30 .675
**

.424 30 .651
**

.001 30 .217

.026 30 .677
**

.004 30 .478
**

.000 30 .902
**

30 1

.000 30 .565
**

.125 30 -.061

.000 30 .519
**

.004 30 .625
**

.000 30 .902
**

30 1

44
N 30 30 30 30 30 30 30

**. Correlation is significant at the 0.01 level (1-tailed). *. Correlation is significant at the 0.05 level (1-tailed).

Interpretation Of table 3: Table 3 shows the correlation between the close prices of BSE Sensex and other variables for every quarter from 2005 to 2012. The table shows that prices per barrel of oil, inflation rates, forex and price of gold per ounce have a strong correlation with the BSE. However factors like rupees per dollars and Crr rates does not have a strong correlation with the dependent variable i.e. close price of BSE. The strongest relation exist with forex and gold price per ounce with Karl Pearson correlation of .675 and .629 respectively.

Table 4 Coefficient of Correlation

Model Summary Adjusted R Model 1 R .848

a

Std. Error of the Estimate

R Square .719

Square .646

2387.07201

a. Predictors: (Constant), Gold Per 1 ounce( Rs.), Crr RATES(%), Inflation Rates, Dollar Price( INR), Price per barrel, Forex Rs.( in crores)

Interpretation Of table 4:

Table 4 shows the significance of R square, R and standard error of estimate. R denotes that the factors have an overwhelming relationship with the dependent variable i.e. close price. R square states that 72% of the variation in the close price is explained by the factors. The deviation of actual y from predicted y comes to be 2387.07201.

45

Table 5 Annova Table

ANOVA Model 1 Regression Residual Total Sum of Squares 3.356E8 1.311E8 4.667E8 df 6 23 29
b

Mean Square 55939630.164 5698112.786

F 9.817

Sig. .000
a

a. Predictors: (Constant), Gold Per 1 ounce( Rs.), Crr RATES(%), Inflation Rates, Dollar Price( INR), Price per barrel, Forex Rs.( in crores) b. Dependent Variable: CLOSE

Table 6 Regression Table For Close Price and Variables

Coefficients
a

Standardized Unstandardized Coefficients Model 1 (Constant) Price per barrel Crr RATES(%) Inflation Rates Dollar Price( INR) Forex Rs.( in crores) Gold Per 1 ounce( Rs.) a. Dependent Variable: CLOSE B 38103.354 -31.442 330.400 427.656 -760.156 -.001 .212 Std. Error 11212.088 46.516 1042.553 241.902 207.797 .006 .084 -.160 .082 .309 -.709 -.092 1.090 Coefficients Beta t 3.398 -.676 .317 1.768 -3.658 -.201 2.537 Sig. .002 .506 .754 .090 .001 .843 .018

46

Interpretation Of table 5 and table 6:

Table 5 shows that sig. Is .000 which tells that null hypothesis may be rejected as the factors are strongly associated with the close price. Table 6 shows the inputs of regression equation, Y= a+b(X1+X2+...+Xn) Where, Y= dependent variable i.e. close price A=Constant B= Unstandardized coefficient B X=Independent variables Table 3.2 shows the relationship between each variable and close price of BSE. Each of the variable data can be used to forecast the close price.

47

48

4.3 Analysis and interpretation for 3rd objective

The objective aims at forecasting Kotak Mahindra Ltd. Close prices for stock for the month May 12, June 12 and July 12. The objective follows technical technique of moving averages, correlation and regression to predict the close price of Kotak in BSE. It uses monthly historical data of three variables i.e. P/E Ratio, Market Capitalization and EPS of Kotak Mahindra Bank Ltd. from Jan 10 to Mar 12. Table 7 Monthly historical data of stock prices of Kotak Mahindra Bank for the years 2010-12 3-Month Moving Average Year Jan10 Feb10 Mar10 Apr10 May10 Jun10 Jul10 Aug10 Sep10 Oct10 Nov10 Dec10 Jan11 FebHigh( Rs.) 439 398.75 407.5 398.35 394.95 424 399.13 438.88 505.5 529.5 499.5 495 463.95 427.5 Low(R s.) 372 350 361 353.18 354.33 365 372.5 386.4 407.05 456 435.15 439.05 371.2 333.25 Close( Rs.) 389.95 371.05 374.53 368.9 378.35 385.4 384.63 414.28 475.9 464.85 475.45 452.45 384.5 405.35 P/E Close 98.25 93.52 46.32 45.64 46.83 47.72 47.68 53.86 61.99 60.58 62.03 59.17 50.29 53.02 Mkt Cap. 27,112. 44 25,806. 53 26,077. 43 25,693. 89 26,369. 48 26,869. 32 26,847. 59 30,325. 76 34,902. 51 34,110. 69 34,926. 56 33,313. 89 28,313. 04 29,851. EP S 3.9 7 3.9 7 8.0 9 8.0 8 8.0 8 8.0 8 8.0 7 7.6 9 7.6 8 7.6 7 7.6 6 7.6 5 7.6 5 7.6 Mkt. Cap. 24449.33 25733.23 26114.49 26332.13 25859.28 26046.93 26310.90 26695.46 28014.22 30691.95 33112.99 34646.59 34117.05 32184.50

49 11 Mar11 Apr11 May11 Jun11 Jul11 Aug11 Sep11 Oct11 Nov11 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 60 33,663. 45 31,704. 88 32,481. 75 35,429. 16 32,974. 85 32,622. 35 33,951. 59 37,742. 62 34,317. 28 31,967. 48 36,815. 86 40,539. 12 40,178. 19 43,190. 01 5 11. 10 11. 10 11. 10 11. 09 11. 09 11. 08 11. 08 11. 07 11. 07 11. 06 11. 06 11. 06 11. 05 11. 04

463 472.4 443.9 483.35 508.95 477.2 485 512.5 514.9 499.7 500 584.5 575.5 603

405.45 421.65 403.25 426 442.25 411.2 435.55 425 428.35 429.6 418.25 491.25 511 531.2

456.85 430.2 440.55 480.2 446.85 441.75 459.65 510.85 464.45 432.25 497.7 547.9 542.45 583.05 552.024 28 555.077 56 560.592 32

41.14 38.75 39.7 43.3 40.3 39.87 41.5 46.13 41.94 39.07 45 49.55 49.11 52.79

30492.84 30609.36 31739.98 32616.69 33205.26 33628.59 33675.45 33182.93 34772.19 35337.16 34675.79 34366.87 36440.82 39177.72 41302.44 41556.88 42016.44

Table 7 shows the forecasted close prices of Kotak Mahindra Bank Ltd for the months May 12, June 12 and July 12. The forecast is done on the basis of regression analysis in SPSS. The table shows that in May 12 the predicted close price of shares is 552.024, in June it is 555.077 and in July it is 560. 592.

50

Calculation of predicted values: Table 8 Correlation between close price and other variables Correlations Close Pe close Mkt Cap Pearson 1 -.205 .995 Correlation Sig. (1-tailed) .147 .000 N 28 28 28 Pe close Pearson -.205 1 -.247 Correlation Sig. (1-tailed) .147 .102 N 28 28 28 ** Met Cap Pearson .995 -.247 1 Correlation Sig. (1-tailed) .000 .102 N 28 28 28 ** ** Eps Pearson .614 -.846 .647** Correlation Sig. (1-tailed) .000 .000 .000 N 28 28 28 **. Correlation is significant at the 0.01 level (1-tailed). Close
**

Eps .614** .000 28 -.846** .000 28 .647** .000 28 1

28

Table 8 shows that the there is a strong linear relationship between the close price and market cap of Kotak Mahindra Bank Ltd. Hence the independent variable here is the market cap. The correlation is .995 which significant. However there is also strong linear negative correlation between p/e ratio and Eps(earning price per share).

51

Table 9 Correlation between Close Price and variables Model Summaryb Adjusted R R Square Square .990

Model

Std. Error of the Estimate 5.78660

1 .995a .990 a. Predictors: (Constant), Met Cap b. Dependent Variable: Close

Table 4.3 shows that 99% of the variation is explained by the independent variable and standard error is also low i.e. 5.78660. Hence the relationship is strong and regression analysis can be carried out effectively.

Table 10 Coefficient of Correlation

Coefficientsa Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta 1 (Constant) 56.395 7.694 Met Cap .012 .000 .995 a. Dependent Variable: Close

t 7.329 51.024

Sig. .000 .000

Table 4.4 shows the values of the variable and coefficients for the regression equation: Y= a+bx Where,

52 Y= dependent variable i.e. close price A=Constant B= Unstandardized coefficient B X=Independent variable = market cap = 56.395 = .012

Hence, the value of close price are predicted using the above values in the regression formula. Since the predicted values are increasing, it indicates that the close price of Kotak will increase in the month of May, June and July for the year 2012.

4.4 Findings:

BSE Sensex is highly affected by several factors but there are certain factors which significantly affect it. These factors were identified, inflation rate, foreign exchange reserves , price of gold per ounce and price of oil per barrel.

The stock of Kotak Mahindra Bank Ltd. has a strong linear relationship with its market capitalization and linear relationship with earning price per share. Hence the market cap has been increasing for the company which indicates that the price of shares would increase in the near future.

Kotak has been able to maintain its stability for the past 6 yrs in terms of financial wealth and market survival. It has been able to maintain its growth. The company`s financial evaluation points that except for current ratio and return on assets, the company is financially stable. The company`s shares price are able to satisfy its investors with good returns and stability. The stock of the company is not undervalued which makes it a grown company in the market.

53 The company tends to grow in terms of market in the future as its market capitalization and p/e ratio increases.

Chapter 5-Conclusion and Recommendations

5.1 Summary Of findings

BSE Sensex is highly affected by several factors but there are certain factors which significantly affect it. These factors were identified as price of oil per barrel, inflation rates, foreign exchange reserves and price of gold per ounce. The stock of Kotak Mahindra Bank Ltd. has a strong linear relationship with its market capitalization and linear relationship with earning price per share. Hence the market cap has been increasing for the company which indicates that the price of shares would increase in the near future. Kotak Mahindra Bank Ltd. would grow in terms of stock market based on technical analysis. The company has been able to maintain its stability for the past 6 yrs in terms of financial wealth and market survival. It has been able to maintain its growth. The company`s financial evaluation points that except for current ratio and return on assets, the company is financially stable. The company`s stock tend to increase in future as it is able to satisfy its investors with good returns and stability. The company tends to grow in terms of market in the future as its market capitalization and P/E ratio increases.

54

55

5.2 Discussion of Research Questions

The research aimed at the following questions: - How has KOTAK grown in terms of stock market in the past years? - What will be the future market prices of the shares of the company? - What are the crucial factors that determine the rise and fall in the stock prices?

The findings for the research have been able to answer the questions till a certain extent subject to its limitations. Kotak Mahindra Bank has grown in terms of stock market in the past 6 years. It has been able to maintain its stability and growth. The main reason for its growth would be satisfaction of its investors and ability to survive in the market. The research was able to predict the market prices of the company and it was able to determine the crucial factors which affect the stock market and prices.

5.3 Recommendations

The company is financially stable but it has work on its current ratio and Return on assets. The company should increase its current day to day operations to increase its current assets.

Asset management should be the concern of the company. A bank`s assets are loans, insurance policies, investment of their clients and customers. The stock market is highly volatile in India. Hence it cannot be predicted accurately but there are certain factors that determine the price of stocks for a company. These factors come to be P/E Ratio, Market capitalization rate and Earning per share.

The overall stock market is affected by certain factors. The company should focus on increasing its sales by their services and products. The positive point is that the company has been able to satisfy its investors.

56 The more the P/E ratio is more is the ability of the company to grow in the share market. The less EPS is than the market price is better for the company`s stock. When the market is bullish the company should rely on technical analysis of a stock whereas when the market is bearish the company should go for fundamental analysis.

Reference Material

Sources: http://www.x-rates.com/d/INR/table.html http://ycharts.com/indicators/gold_price_in_indian_rupee http://www.oecd.org/document/8/0,3746,en_2649_37439_40930184_1_1_1_37439,0 0&&en-USS_01DBC.html www.indiainfoline.com www.moneycontrol.com www.rediff.com www.yahoofinance.com http://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/fromdate-/todate/frequency-daily/arc-0/prices/companyid-12161,exchangeid-50,numberofdmw30,pagenumber-1,pagesize-25.cms www.investopedia.com Kotak Mahindra Bank Ltd. Annual Balance Sheet 2011-12 provided by the Bank. www.financeglossary.com

57

References: Arjit Ghosh, Samrat Roy, 2009, DETERMINANTS OF BSE SENSEX: A FACTOR ANALYSIS APPROACH. Bhalla,1990, Price Behavior In Emerging Stock Market F.Fama, E. , (1965, January) The Behavior Of Stock Market Prices, pp. 34-105. Martikainen, 2008, Modeling stock price behavior by financial ratios . Parthaarathy, K. V, (1990) Stock Price Behavior And Operational Risk Management Of Banks. Russell, 2010, Determinants Of Equity Prices in the Stock Markets. Affleck, J. (2010). Online and out of line. Townsville Bulletin. Townsville, Md.: Dec 25, p. 83. Agarwal, S., & Mital, M. (2009). An exploratory study of Indian university students' use of social networking sites: Implications for the workplace. Business Communication Quarterly, 72(1), 105-110. Armour, N. (2006). Athletes learn to regret overexposure on Web. Journal Gazette. Ft. Wayne, IN: May 30, 1B.

Beaudoin, M. (2002). Learning or lurking? Tracking the 'invisible' online student. Internet and Higher Education, 5(2), 147-155. Bowean, L. and Mack, K.(2010). Can your teacher be your 'friend' online? Chicago Tribune. Chicago, Ill.:Aug 10, p. 1.1

Boyd, d. m., & Ellison, N. B. (2007). Social network sites: Definition, history, and scholarship. Journal of Computer-Mediated Communication, 13(1), 210-230. Brooks, B. G. (2007). CU Internet postings led to dismissals: [FINAL Edition]. Rocky Mountain News. Denver, CO: Jan 21, 2007, 14SPORTS.

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Bull, G., Thompson, A., Searson, M., Garofalo, J., Park, J., Young, C., et al. (2008). Connecting informal and formal learning: Experiences in the age of participatory media. Contemporary Issues in Technology and Teacher Education, 8(2), 100-107.

Bibliography: Khan, M. (2011), Financial Management. M.T Raju, A. G., Stock market Volatility. Malhotra, N. K, Marketing Research: An Applied Approach.

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APPENDIX Appendix A

Kotak Mahindra Bank Balance Sheet Mar '12 in Rs. Cr. Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

12 mths

12 mths

12 mths

12 mths

12 mths

Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities

370.34 368.44 348.14 345.67 370.34 368.44 348.14 345.67 0 0 0 0 0 0 0 0 7575.5 6464.9 4191.7 3559.8 9 5 8 6 0 0 0 0 6833.3 4539.9 3905.5 9 2 3 38536. 29260. 23886. 15644. 52 97 47 93 16595. 11723. 6140.5 5904.0 52 95 1 7 55132. 40984. 30026. 04 92 98 21549 2553.6 3032.3 2869.4 3257.3 7 6 2 4 65666. 50850. 37436. 28711.

344.67 344.67 0 0 3249.0 4 0 3593.7 1 16423. 65 5119.2 5 21542. 9 3175.7 5 28312.

326.16 326.16 0 0 1335.7 7 0 1661.9 3 11000. 09 5099.7 5 16099. 84 2153.6 5 19915.

60 47 67 32 87 36 42

Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets 2016.4 2107.7 2085.6 1710.2 9 2 7 995.35 9 751.22 618.06 39079. 23 19980. 80 1000.3 2 555.34 480.33 0 1935.9 0 363.26 214.59 145.32 439.18 544.75 29329. 20775. 16625. 15552. 10924. 31 05 34 22 07 17121. 12512. 9110.1 9141.9 6861.9 44 66 8 9 6 831.8 406.2 425.6 0 1503.3 3 745.34 317.69 427.65 0 1420.6 9 460.61 247.25 213.36 0 1622.3 3 391.42 181.17 210.25 0 1258.4 3 273.57 132.48 141.09 0 692.33

65666. 50850. 37436. 28711. 28312. 19915. 47 66 31 88 36 42

Book Value (Rs)

174.2

92.74

130.4

112.98 104.26

50.95

Appendix B Kotak Mahindra Bank Profit & Loss account Mar '12 ------------------ in Rs. Cr. ----------------Mar '11

Mar '10

Mar '09 Mar '08

Mar '07

61

12 mths Income Interest Earned Other Income Total Income Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses Provisions & Contingencies Total Expenses 2,513 977 3,490

12 mths

12 mths

12 mths

12 mths

12 mths

4303.56 507.56 4811.12

3255.62 420.97 3676.59

3065.1 4 157.56 3222.7

2535.3 6 310.48 2845.8 4 1309.5 6 519.23 326.66 50.86 345.6 0 999.25 243.1

1354.1 287.83 1641.93

2058.49 872 350 90 400 0 963 55 2405 783.83 487.82 98.27 564.53 0 1528.58 405.87 3992.94 Mar '11

1397.48 583.48 648.07 90 396.47 0 1447.42 270.6 3115.5 Mar '10

1546.6 583.63 552.91 69.56 193.91 0 1333.6 66.41

699.24 292.98 286.82 34.74 186.79 0 696.06 105.27 1500.57 Mar '07

2946.6 2551.9 1 1 Mar '09 Mar '08

12 mths Net Profit for the Year Extraordinary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax

12 mths

12 mths 276.1 0 528.17 804.27 0 25.96 1.86

12 mths 293.93 0 354.18 648.11 0 25.87 4.4

12 mths

1085

818.18 0 965.91 1784.09 0 36.88 4.37

561.11 2.01 648.94 1212.06 0 29.66 0

141.37 0 503.12 644.49 0 22.86 3.88

62 Per share data (annualised) Earnings Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfe r to Govt Balance c/f to Balance Sheet Total

11.1 10 92.74

16.12 8.5 130.4

7.99 7.5 112.98

8.53 7.5 104.26

4.33 7 50.95

207.41 40.91 41.25 1494.52 1784.09

188.43 28.06 29.66 965.91 1212.06

113.7 13.8 27.82 648.94 804.26

74.98 14.7 30.27 528.17 648.12

39.55 224.02 26.74 354.18 644.49